Investing in Commercial Property - Some Essential Checks

Many people who want to invest in property prefer commercial property against residential property, why exactly? In this article we'll examine some of reasons why.

Commercial leases are longer than residential leases adding more security. Commercial leases usually run from 3 to 5 years, and as a business gets established it is likely to want to move. This also leads to more renewals, which saves you time and money.

Another important factor is that with a commercial lease agreement, the tenant is liable for most repairs and renewals, increasing with inflation (subject to the lease agreement).

Finding commercial property to buy can also be a lot easier. With residential properties, location is a major issue. With commercial property it is also, but most commercial property will already be in a prime area.

When you start out, finding commercial property may be a bit of a headache as you may not be aware of all the areas where commercial properties cluster. If that's the case, there are always commercial estate agents who can guide you.

While the current economy is not exactly vibrant (understatement!), there are always businesses starting up or expanding. On the other side of the coin there are many businesses unfortunately failing, making it a great buyers market. The trick at the moment is to keep a strong eye on what commercial property is going to be wanted, and making sure that your portfolio has a strong percentage of these kind of properties.

With many new start ups, small office buildings with multiple rental spaces may be the best bet. You won't suffer so much if you lose one tenant out of 6, compared to a different property with fewer rentals.

No matter what you decide on though, always be thorough with your due diligence. This is even more important of you are investing in a property which is occupied. You don't want to be saddled with a hard to move non-paying tenant!

Here is a quick checklist to help you get started when weighing up a commercial property investment:

• Study all the leases to be sure there are no surprises later on. If you are buying commercial property which has long term tenants, be sure to not spook them. Make sure to visit them, understand their business and potential and get them on your side. The last thing you want is to buy a property and find all the tenants leave.

• Check all the tenants payment history. This can help warn you if any tenants are having a cash flow issue.

• Carefully look over the buildings maintenance records to see how well the property has been maintained. You don't want the surprise of massive repairs. If there is any doubt, walk away unless you can really knock the price down to cover these costs.

• If you can, ask to see the buildings insurance policies and details of any claims made in its recent history. This will give you a hint as to it's past maintenance.

• You will want a professional to check the building for any potential issues, but walk through the building with the existing owner. If there are existing tenants, ask the owner to introduce you to them (then get to chat to them on your own later to get any information the current owner may not want to share with you.

• Is the property under-insured? Get several insurance quotes to confirm the right price. You do not want to under-insure.

Yes, there are more issues investing and leasing out commercial property. It may not be for everyone. But, comparing commercial to residential there is generally more security and longer term profits to be made.

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